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Statistical Properties of a Heterogeneous Asset Pricing Model with Time-varying Second Moment

In: The Complex Networks of Economic Interactions

Author

Listed:
  • Carl Chiarella

    (University of Technology)

  • Xue-Zhong He

    (University of Technology)

  • Duo Wang

    (Peking University)

Abstract

Summary Stability and bifurcation analysis of deterministic systems has been widely used in modeling financial markets. However, the impact of such dynamic phenomena on various statistical properties of the corresponding stochastic model, including skewness and excess kurtosis, various autocorrelation (AC) patterns of under and over reactions, and volatility clustering characterised by the long-range dependence of ACs, is not clear and has been very little studied. This paper aims to contribute to this issue. Through a simple behavioural asset pricing model with fundamentalists and chartists, we examine the statistical properties of the model and their connection to the dynamics of the underlying deterministic model. In particular, our analysis leads to some insights into various mechanisms that may generate some of the stylised facts, such as fat tails, skewness, high kurtosis and long memory, observed in high frequency financial data.

Suggested Citation

  • Carl Chiarella & Xue-Zhong He & Duo Wang, 2006. "Statistical Properties of a Heterogeneous Asset Pricing Model with Time-varying Second Moment," Lecture Notes in Economics and Mathematical Systems, in: Akira Namatame & Taisei Kaizouji & Yuuji Aruka (ed.), The Complex Networks of Economic Interactions, pages 109-123, Springer.
    • Handle: RePEc:spr:lnechp:978-3-540-28727-8_7
    DOI: 10.1007/3-540-28727-2_7
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    Citations

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    Cited by:

    1. Park, Beum-Jo, 2014. "Time-varying, heterogeneous risk aversion and dynamics of asset prices among boundedly rational agents," Journal of Banking & Finance, Elsevier, vol. 43(C), pages 150-159.
    2. Giovanni Campisi & Silvia Muzzioli, 2020. "Fundamentalists heterogeneity and the role of the sentiment indicator," Department of Economics 0167, University of Modena and Reggio E., Faculty of Economics "Marco Biagi".

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